Naftogaz to Pay USD 321/tcm for Gas Delivered in Jan-Feb �08?

11 March 2008

Kommersant newspaper, referring to a copy of a contract between Naftogaz of Ukraine and RosUkrEnergo as of March 6, reported that Naftogaz of Ukraine agreed to pay USD 321/tcm for natural gas delivered in January-February 2008. Excerpts from the copy of the contract published by Interfax include the signatures of Naftogaz’s Vice Chairman, Ihor Didenko, and RosUkrEnergo’s CEO, Konstantin Chuychenko. The volume of gas supplied during the period was not mentioned in the contract, while the newspaper cites a source in Gazprom as saying that there is a possibility that the price of USD 321/tcm relates to the volume of about 4.0 bcm of gas, out of 9.1 bcm supplied to Ukraine. The contract also stipulates an 8% annual fine charged on the value of gas delivered starting from January 1 until the date of 100% cash settlement. Naftogaz’s spokesman, Valentyn Zemlyansky, said that he had no information about the contract and noted that official negotiations with Gazprom will only resume on March 12. Vladimir Nesterenko: In our view, the most important message is the indication of the price level Ukraine might be forced to pay if the government continues to resist Gazprom’s offensive into Ukraine’s domestic gas market. Under the assumption that Ukraine pays USD 321/tcm only for 4 bcm of gas and buys the remaining 52 bcm for USD 180/tcm, the annual average price would amount to roughly USD 190/tcm. This is USD 5 higher than the current price set for industrial consumers (USD 185/tcm, excl. VAT, transportation and other charges) and may imply another increase in the local price. The 8% fine is also likely to spill over to the price for final consumers.